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Forex trading strategy: Avoid unnecessary losses by keeping abreast of key economic indicators

by , 23 April 2015

If you're looking to bank tidy profits trading forex, technical analysis is the tool for you. But you can't ignore fundamentals.

You must know when key economic data is due for release, otherwise you could get a nasty surprise when in a trade.

Let's take a closer look at what you need to do…

The five key economic indicators you need to know about

Finding forex trades using technical analysis can prove very successful. But even though this may form the core of your forex trading strategy, you can’t ignore fundamental factors.

It’s vital you know when specific news and announcements are due for release as they can have an impact on the forex market.

The five most important economic indicators to watch for are:

  1. Growth rates;
  2. Interest rates;
  3. Inflation;
  4. Unemployment; and
  5. International trade.

Why you need to know when these key economic indicators are due out

These economic indicators can impact the supply and demand for a currency.

For example, if there’s an increase in demand for a currency, it will rise in value against other currencies. This also happens if there’s a decrease in supply.

So you need to know when these economic indicators are due out. There are various websites you can use to keep an eye on the release of these indicators, such as the calendar from DailyFX.com.

You can see the impact of interest rates on the dollar at the moment. The US economy is showing signs of a sustained recovery after the financial crisis of 2008.

After finishing with its stimulus programme last year, the US Federal Reserve will likely start to raise interest rates in the near future. Speculation over when this will happen has helped the dollar strengthen as investors want to gain from its higher yield when rates rise.

In other words, there has been an increase in demand for the dollar. This has had a negative impact on the rand/dollar exchange rate.

So there you have it. Why you must stay abreast of key economic indicators when trading forex.

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Forex trading strategy: Avoid unnecessary losses by keeping abreast of key economic indicators
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